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How the regions are bearing up to the downturn: SOUTH EAST

8 September, 2008By David Rogers

Looking out across London and the cranes that still dot the skyline, it’s still difficult to tell that a recession is looming.

But already large parts have found themselves immersed in it, with housing the most high-profile example. What seems to have caught everyone by surprise in this sector is the sheer speed of the nosedive.

Other sectors, such as fit-out and industrial sheds, have also been hit, with some subcontractors talking about cut-throat pricing in this sector.

Commercial office blocks have also suffered with British Land saying last month its office block at 122 Leadenhall in the City would now be finished at least one year later than planned.

It hasn’t been shelved though and nor has the Shard of Glass building which has endured all sorts of stop-starts.

London and the South-east in economic terms is the powerhouse of the industry.

A recent report by cost consultant Davis Langdon predicted misery for contractors working in swathes of cities in the north of England. The M62 corridor cities – Liverpool, Manchester and Leeds – will be particularly hit.

Of Leeds, report author Peter Fordham said there is now a “marked fall in orders in the city” while Manchester is described as “probably having had its heyday”.

Liverpool, which saw a flurry of work in the lead-up to this year’s status as capital of culture, is now heading for a slowdown, with Mr Fordham adding: “While there is a lot of work going on in Liverpool, a lot of it will be finishing soon.”

What’s interesting about these three cities is the work that went on here was independent of London. This was part of an overall economic boom whose legacy, in Leeds at least, is now a massive oversupply of empty apartments.

The same report says that London is best set to weather the problems and that construction price rises in the capital will see hikes of three to five per cent per annum over the next two years. Outside the capital this will be only two to three per cent.

London has probably been most hit by the downturn in the office market. The capital accounts for the bulk of the large schemes in the country and the majority of tower cranes in the capital are on jobs that have been up and running for some time now.

Office space in the West End is holding up well, as Morgan Sindall executive chairman John Morgan noted when quizzed about the performance of his fit-out business, but the City is taking a bit of a hammering.

Further east, Canary Wharf still has a number of big jobs on the go.And further east still there is the Olympics site. As well as building the venues for the 2012 Games, London is benefiting from the improvements to London’s transport infrastructure.

As well as immediate improvements in and around Stratford, Network Rail has earmarked billions for the upgrade of its Brighton to Bedford via City of London Thameslink route.

And the operator is spending millions on an upgrade of key stations in the capital such King’s Cross and Waterloo.

A lot of firms are thinking the Games will drag in companies and workers from outside the capital which will open holes that need plugging.

And the next few years will see an unprecedented amount of work going on beneath the capital’s streets.

Crossrail involves a huge amount of work between 2009 and 2017; the Thames Tideway tunnel – the £2.3 billion sewage overflow tunnel that Thames Water will build; and almost trifling by comparison, are the four tunnels National Grid wants to start building from next year which have a combined value of £600 million.

Capital’s housing holds up London’s exposure to private housing has been limited and not so long ago Barratt chief executive Mark Clare said the capital was the only place where the apartments market was relatively resilient.

At the moment, it feels like there is enough work around in London. But the figures Glenigan is coming up with make this less certain. Work on the two biggest stadia of the 2012 Games has started and a large number of big ticket jobs are due to begin next year.

Civils would, on the face of it, seem more resilient but with some of the big jobs like Thameslink there is a lot of building work involved.

Earlier this year the share price of a key subcontractor, Severfield-Rowen, took a bath when it admitted it had seen a softening in some of its key markets and for a while it became the bellwether of City sentiment.

A few months later, chastened chief executive Tom Haughey said shares had been unfairly marked down and said its forward order book was more than double last year’s.

At the time, Mr Haughey said this: “Construction is softening because of the problems in house building and that is impacting disproportionately on other sectors.”